Kinross Gold Corp (KGC) 2013 Q3 法說會逐字稿

Thank you for standing by. This is the Chorus Call conference operator. Welcome to the Kinross Gold Corporation Q3 2013 financial results conference call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation there will be an opportunity to ask questions.

(Operator Instructions)

At this time, I would like to turn the conference over to Mr. Tom Elliott, Vice President of Investor Relations. Please go ahead, sir.

Thank you and good morning. Welcome to Kinross Gold Corporation's conference call to discuss third-quarter 2013 results. With us today are Paul Rollinson, Chief Executive Officer; Brant Hinze, President and Chief Operating Officer; and Tony Giardini, Chief Financial Officer.

Before we begin, I would like to bring to your attention the fact that we will be making forward-looking statements during this presentation. For a complete discussion of the risks, uncertainties and assumptions which may lead to actual financial results and performance being different from estimates contained in our forward-looking information, please refer to page 2 of this webcast, the news release dated November 13, 2013, Management's Discussion and Analysis for 2012, and, for the period ended September 30, 2013, and our most recently filed AIF, all of which are available on our website. I'll now turn the call over to Paul Rollinson, CEO of Kinross Gold.

Thanks, Tom. Thanks to everyone for joining us today. I'll give a brief overview of the quarter, and then Tony and Brant will provide more color on our financial and operating results.

Looking at the big picture, I see two key themes in this quarter. First, operational performance, and second, cost reduction.

In terms of operational performance, it was a great quarter. For the past year, we have set a very high priority on operational excellence and consistently delivering on our commitments.

In Q3, our portfolio of mines delivered another quarter of excellent results, our fifth consecutive quarter of strong performance. We are on track for a very good year overall and have increased our production guidance, accordingly.

Turning to the second major theme, cost reduction, we continue to make solid progress. Well before the gold price fell, with our Way Forward program, we've brought a new level of discipline to our capital spending and reset the focus of our operations to cash flow, cost control and quality over quantity.

That has positioned us well to take proactive and considered decisions to maintain our balance sheet strength, given the recent volatility on gold prices. In the second quarter, we accelerated our cost reduction efforts and I will update you shortly on the new savings we've identified.

Looking at our Q3 operating results, our third-quarter production increased compared to the same quarter last year, and was also higher than production in the second quarter of this year. We are looking forward to an excellent year overall, and as a result we have increased our production guidance to 2.6 million to 2.65 million gold equivalent ounces.

For the quarter, our all-in sustaining cost was below the guidance range and cost of sales was at the low-end of guidance. For the full year we expect to be at the low end of guidance for both cost of sales and all-in sustaining costs.

Brant will provide more detail on specific mine performance during the quarter, but I'd like to provide a few highlights. Two of our mines, Fort Knox and Paracatu, achieved all-time production records in Q3.

Fort Knox had its best quarter in 16 years of operation. At Paracatu, the new team has steadily raised recovery and throughput and improved on other key metrics. As a result, they are establishing a solid record for dependable performance.

In October, we opened our new Dvoinoye mine on time and on budget. A major accomplishment, given some of the recent challenges facing new projects in the industry. Dvoinoye will be a low-cost mine that let's us leverage our existing infrastructure at Kupol and is a great example of maximizing margin and cash flow.

Brant and I traveled to Dvoinoye last month for the opening and we were both very impressed by what we saw. Dvoinoye has a great team that is already hitting their stride, as they ramp up to design mining rates. So, to sum up on operations, I'm very proud of what all of our people have achieved over the past five quarters.

Now let me update you on our cost reduction effort. We said last quarter that in light of the lower gold prices, we were accelerating our Way Forward in a focused drive to reduce spending across our operations. We also said that our work on this was continuing, we'd provide an update this quarter.

On the CapEx front, we started the year with guidance of $1.6 billion, we reduced that forecast to $1.45 billion last quarter, after identifying $150 million in capital reductions. Now after further work, we've identified another $50 million in savings and have lowered our 2013 CapEx guidance to $1.4 billion.

Looking ahead, we are still completing our budget process for 2014 but we expect to reduce CapEx next year to approximately $800 million to $900 million. This is a preliminary estimate and we will provide more detail with our full-year guidance in February.

The key message is, we are continuing the trend we began a year ago of reducing spending and maintaining capital discipline. That means approaching our capital expenditures in a balanced way and prioritizing spending, while preserving the capital we need to build the business for the long-term.

Last quarter we also said we were embarking on a thorough review of overhead at our corporate offices in Toronto and in our regions. We had already been running a fairly lean and efficient organization from an administrative and overhead standpoint, however, given the volatile gold price, we looked for further improvement.

Our teams do a lot of good work and identified approximately $20 million in annual savings, which equates to approximately 15% of our 2013 G&A budget. This is a result of streamlining administration, working more efficiently and reducing discretionary spending. This includes the decision to integrate our North and South America regions into a single region known as the Americas.

Looking at our operating costs, as we have said before there are costs we can control and costs we can't control. Our Way Forward has focused squarely on the costs that we can control, for instance, the size of our workforce or our use of contractors.

We have reduced our workforce significantly in some areas of the business as a result of decisions we have made at our projects, mines and regional offices. Some of these reductions are benefiting our capital costs, some are benefiting G&A and others are benefiting operating costs. Overall, we expect that our workforce will be reduced by about 1000 people as a result of various measures we've undertaken in 2013.

In other cases, we have reduced operating costs by replacing more expensive contractors with our own employees, which partially offsets workforce reductions elsewhere, but improves our bottom line. These types of decisions are consistent with our focus on margins.

Thanks to initiatives like these and others throughout the year, we have been very successful in managing our costs. We are continuing our efforts on all fronts, and we'll provide our detailed guidance for 2014 when we release our Q4 results in February.

So to sum up, we had our fifth consecutive quarter of strong results at our operations. We had an all-time record production at two of our biggest mines. We opened a new mine, on-time, on budget. We increased production guidance to reflect excellent performance for the year.

We expect both our cost of sales and our all-in sustaining cost per ounce to be at the low end of our guidance ranges. And we further reduced our CapEx guidance for 2013 and have forecast another major CapEx reduction in 2014.

Added to our strong balance sheet, with $930 million in cash and modest net debt, we continue to be ahead of the curve in an uncertain gold market and well-positioned for the future. I'll now turn the call over to Tony for more on our Q3 financial results.

Thank you, Paul. Third-quarter revenue was $876 million, driven by consolidated sales of 658,000 gold equivalent ounces. There was a difference of 29,000 ounces in production versus sales during the quarter, this related to the timing of gold shipments particularly at Kupol, as September deliveries to the refinery were affected by flooding in the region.

Despite our strong production and cost performances quarter, lower gold prices had a significant impact on our financial results. Average realized gold price for the quarter was $1,331 per ounce, compared to the average London PM fix of $1,326, but was down $318 per ounce from the same quarter last year.

Adjusted operating cash flow was $256 million or $0.22 per share, compared with $436 million or $0.38 per share in Q3 2012. Adjusted net earnings were $54 million in Q3, compared with $252 million in the third quarter of 2012.

On a per-share basis, adjusted net earnings were $0.05, compared to $0.22 per share in the same quarter last year. The decrease in adjusted net earnings is largely related to the decline in the gold price.

Third-quarter capital expenditures were $301 million, a decrease of 32% from the same period last year and a 6% decrease from the second quarter. This is mainly due to lower spending and Paracatu, Dvoinoye, Tasiast, Maricunga and La Coipa. All in sustaining cost was $1,069 in the third quarter, compared with $1,021 in Q3 2012, primarily due to lower silver revenues and an increase in production cost of sales, which was partially offset by a decrease in sustaining capital expenditures.

Kinross continues to maintain balance sheet strength and liquidity as our priority objective. As of September 30, 2013, Kinross has approximately $2.5 billion of liquidity. This consists of $991 million in cash, cash equivalents and restricted cash, and $1.5 billion of available credit facilities.

We have a net debt position of $1.2 billion, and no material debt maturities prior to 2016. We have a solid liquidity position, and investment-grade credit rating, and preserving the strength of our balance sheet will continue to be a strategic priority.

As Paul mentioned, we have provided an update to our 2013 guidance which is outlined on slide 10 of the webcast. We have increased production guidance, lowered capital expenditures, and are targeting the lower end of the guidance ranges on cost of sales and all-in sustaining costs.

Looking forward to next year, we expect 2014 capital expenditures to be in the range of $800 million to $900 million. We'll provide detailed estimate of our 2014 CapEx pending with our guidance in February.

As we mentioned last quarter, we conducted a comprehensive cost review across our organization as part of the accelerated Way Forward efforts. As a result of this review we have identified a number of opportunities to reduce overhead cost while increasing efficiencies at our operations.

One example is the integration of our North and South American regions into a single Americas region. We saw a clear opportunity to streamline regional administration and we expect that integrating the two regions will enable us to realize significant synergies and reduce regional overhead costs. It will also simplify our organization and enhance our ability to share best practices, talent and administration capabilities between mine sites.

As a result of the integration, we will be downsizing our administrative office in Chile and Brazil and closing our office in Reno. The combined regional administration functions will be relocated to Denver. Brant will now provide an update on operations and projects.

Thank you, Tony. When we introduced the Kinross Way Forward over a year ago, we said it was designed to change our behavior and our culture to emphasize operational excellence. This is continuing to show in our results as we have delivered a fifth consecutive quarter of strong operating and cost performance.

I'll be speaking to some of the operational highlights of the third quarter, and provide a brief update on projects and exploration. Fort Knox had a record quarter as production increased 19% from quarter two, while costs declined $20 per ounce.

Considering Fort Knox has been operating for 16 years this is an impressive achievement. The mine benefited from improved heap leach performance, as well as the positive impact of the second carbon-in-column plant which was successfully brought online in July.

Paracatu had an excellent quarter, achieving record quarterly production and mill throughput. Production increased 13% while costs declined 11% from the second quarter and the operation benefited from higher grade and recoveries. We've seen steady improvements at Paracatu, with production increases and costs declining throughout the first nine months of the year.

Production at Maricunga decreased 22% while costs increased 27% from the second quarter. The production was impacted by less than favorable heap leach performance due to the leach characteristics of the ore placed on the heap, as well as performance issues associated with the ADR plant.

We are not satisfied with the performance and high-costs we have experienced at Maricunga this year and have stepped up our efforts to improve the operation. We have put a new management team in place and they will be focusing on a number of opportunities for improving operating performance and reducing costs.

We are going to give the team time to show improvements. I do want to stress that all of our mines must deliver an acceptable return and we will not shrink from tough decisions to deliver on that commitment.

As expected, we finished mining at La Coipa at the end of October. The mine has produced over 3.5 million gold equivalent ounces since it began production in 1991. And I'd like to thank the operations team for their contributions.

Turning to West Africa, Chirano performed well in the third quarter, as a result of better grades and recoveries. Chirano is a great example of focusing on the costs we can control.

We successfully implemented self-perform mining in the open pits, illuminating contractors and reducing surface mining costs per ton by 50%. We are now looking at implementing self-perform in the underground. We are also advancing work on a number of prospective exploration targets at that site, and our team is excited by the potential at Chirano.

There are some operating challenges ads Tasiast this quarter. Production was impacted by a 12-day employee strike and a rare heavy rain event which impacted heap leach operations.

Production decreased by approximately 20,000 ounces compared to the second quarter, while costs increased 9%. Despite the challenges at Tasiast this quarter, the West Africa region is expected to be at the high end of its production guidance and within cost of sales guidance for the year.

Russia continues to deliver strong results. Production increased 23% and costs were in line with the second quarter. The operation benefited from higher throughput due to scheduled mill upgrades and the first batch of development ore from Dvoinoye.

Turning to our development projects, Dvoinoye commenced commercial production in October. We expect our newest mine to contribute approximately 30,000 equivalent gold ounces this year, including the 12,000 ounces from development ore processed in the third quarter.

This high-grade low-cost mine is expected to produce between 235,000 to 300,000 gold equivalent ounces annually during its first full three years of production. Dvoinoye is the fourth mine Kinross is operated in Russia, which remains our lowest cost jurisdiction and a core operating region for the Company. I would like to congratulate the team in Russia for commencing production on time and on budget despite the challenges of the remote northern location.

At Tasiast we completed construction of basic site infrastructure, including the 20-megawatt power point, reverse osmosis plant and maintenance facilities. The feasibility study on the potential mill expansion continues on schedule and is expected to be complete in the first quarter of next year. Let me remind you we have a very large resource at Tasiast, and we are continuing our drilling program on district step-out charges along the Tasiast trend.

We also continue to evaluate a number of organic growth opportunities within our portfolio. For example, we have now handed La Coipa over to our projects team as we continue to assess the future potential of Phase 7, and we are encouraged by the prospects.

On the exploration side we continue to advance brownfield and near mine exploration programs and high priority regions. These include the Tasiast district, numerous underground and open pit opportunities at Chirano, Kupol, including the nearby Moroshka target, district exploration around Dvoinoye, and the Catalina target at La Coipa which is located 800 meters from Phase 7. We look forward to providing a more detailed exploration update with our year-end results in February.

Overall, it was a great quarter and an excellent nine months of operating performance. I'm pleased that we have been able to raise our production guidance and that we expect to be at the lower end of our cost of sales and all-in sustaining cost guidance ranges.

I want to extend my gratitude to all our employees for their hard work and dedication to delivering results, while maintaining one of the best safety records in the industry. I'll now turn the call back over to Paul.

Thanks, Brant. So to sum up, we came in 2013 clearly focused on a number of important objectives. We sought to clearly establish our strength and dependability as operators.

To change our operational mindset to focus on quality over quantity. To continue our strict discipline and capital allocation. To reduce spending to preserve margin and enhance cash flows. And to bolster our balance sheet to mitigate financial risk. With five quarters of successful execution behind us and with less than two months remaining in the year, I'm pleased to say that we have delivered on these objectives.

Being in the mining industry we also recognize the importance of future growth to ensure long-term, sustainable business. And we are pleased to have brought a new, low-cost mine into commercial production at a challenging time for the industry.

We believe our track record and our strategy have positioned us well to weather the current volatile environment and to take advantage of future growth opportunities. With that, operator, I'd now like to open up the call for questions.

Thank you. We will now begin the question-and-answer session.

(Operator Instructions)

John Bridges, JPMorgan.

Morning, Paul, everybody, congratulations on the progress. I do note, though, that you consumed more than $200 million of cash off the balance sheet in the quarter. Looking forward into next year, where do you see the benefits coming through to bring that back into balance?

Sure. I'll take the lead and then I'll hand off to Tony, John. Look at what we've had here, we started this process 12 months ago, our Way Forward initiative, pursuit of margin, pursuit of cost savings and capital savings. I think the track record speaks for itself.

That's now become embedded in our culture. We did all of that before we hit the gold price volatility. Subsequent to the gold price volatility, we amped up the thinking and dug deeper. That process will continue as we go into next year.

John, I think in terms of looking up the cash balance, you actually have to look back to when we built up that cash balance. We issued bonds in 2011, in fact towards the latter part of the year coming into 2012, so we had high cash balances starting in 2012. We're sitting still at roughly $930 million of cash right now.

If you look at next year, and obviously we haven't provided full guidance. We'll be doing that in February. But as we've indicated, indicatively on a preliminary basis, our expected guidance on capital is between $800 million and $900 million.

In the current year we are going to be spending roughly $1.4 billion. Even if factoring those in, that gives you a better sense of how we're going to be looking at our cash position next year.

We can't protect the gold price. We're doing everything we can to manage the business in the context of the current environment. We've made the difficult decisions over the course of the year. We're focused on consistently operating the operations. And we're obviously mindful of the current market environment.

That being said, we continue to have strong access to capital. We've got a $1.5 billion undrawn credit facility, and we're really not concerned about our ability to fund our business in 2014.

Thanks for that. It sounds as if Brant's going to have a busy year. And then as a follow-up, I don't recall you saying anything about Round Mountain? What do you see happening there? Accelerated wind down of that? What you expect?

Steady as she goes. Brant, why don't you run with that one?

Yes. Round Mountain is a pretty steady, consistent performer. I think that we'll see performance over the coming years pretty similar to what we're seeing this year.

And out in the future, we have some pretty good years coming as well, too. As far as giving any long-term forecast, obviously we don't do that. We're in the process of budgeting right now for 2014. I think, though, that as a performer, Round Mountain is just one of those steady keep-delivering type performers.

Okay, cool. Thank you very much.

Thanks.

Jorge Beristain, Deutsche Bank.

Good morning, gentlemen. I know you didn't provide the specific breakdown, but if you could give us some color as to for that $800 million to $900 million range for CapEx, roughly how much would you see as sustaining and how much would be growth?

Sure. And again, just to provide some context, Jorge, this is our third-quarter call, third-quarter results. What we did say on the second quarter, in light of the cuts we were making, suspending the dividend and accelerated efforts to reduce costs, that we would give a directional update on guidance. We're trying to be helpful.

We said we'd give a directional update on guidance because we'd be in the middle of our budgeting process and we'd be comfortable enough to give a directional guidance. Last year, as you know, our guidance was $1.6 billion. $600 million of that was Tasiast infrastructure-related items that we needed irrespective of whether or not there was an expansion. There was $200 million of opportunity and the balance was sustaining.

So, what we've done on this call, on this press release is, again, give you a directional look. I think you can get a sense from that, where we're going. Maybe Tony, if you want to elaborate a little bit more?

Right. I think probably a good reference for you is to look to guidance that we put on at the beginning of this year. We had sustaining capital of roughly $590 million included in that, and opportunity capital of $170 million, and then the growth capital on top of that. The other point to consider is capitalized interest, which would be a part of that.

So, if you take the $800 million to $900 million range, back out capitalized interest of approximately $70 million, and look at how we looked at sustaining versus opportunity capital, that would probably give you a good indication of how that amount is going to break down. But I think, as Paul has pointed out, it's preliminary numbers, still working through our budgeting process. We'll have more detailed updates when we provide our guidance in February.

Right. (multiple speakers) I'm just trying to get a ballpark if you were to spend ballpark $200 million to $300 million on growth next year, order of magnitude I'm assuming the bulk of that is Tasiast. But could you spell out any other big-ticket growth projects that you would have on your radar screen?

Well, I think at this point, again, we're trying to be directional, it's not about 2014 guidance. We're trying to be helpful. I think what I would say is just I think we've demonstrated discipline on capital.

I think our assets are well-maintained. I would not expect a dramatic delta, year over year on sustaining. And that we're still fine-tuning numbers and going through the budget process for some of those opportunity items.

Okay, thank you.

Greg Barnes, TD Securities.

Thank you, operator. Paul or Brant, the Maricunga operation obviously a challenge. Can you be a little more specific about what you're going to do there to bring costs down?

Yes, look, we acknowledge it's a low-grade high-altitude mine. I know people have drawn analogies to La Coipa. It's similar but it's still apples and oranges.

La Coipa, as you know, we suspended and we're going back and drilling out satellite deposits in the hope that we will reopen with a better margin and cash flow proposition. Maricunga is a slightly different situation. Brant, you can elaborate on the kinds of activities and what we're thinking as we look forward to Maricunga.

Yes, let me first give a little bit more detail on what happened in the third quarter. In the third quarter, we did see a little bit more argillic ores. Ores that did impact percolation on the heap leach operation.

I would say the heaps from a loading standpoint, and as well from a solution management standpoint, the performance could have been better their as well. And then we were having some maintenance issues with our ADR plant, which as a result, is not performing where it needs to perform.

But, looking at Maricunga and looking at Maricunga going forward, I would say that number one we have put, as I indicated on the call here, that we have put a new team in there. And it's a very strong team and a number of members from that team are from the same group and the same team that went into Paracatu and turned that around.

We are looking at all our heap leach loading plans, our heap leach loading schedules, our solution management plans, solution management schedules, solution management from a standpoint of volume and chemistry. We're spending an awful lot of time on the maintenance on the ADR plant so that we get our proper fluidization in our beds and get efficient use of our carbon.

And then we're also, from a self-perform perspective, we've taken over the mobile equipment maintenance and the availabilities. We're looking at those to improve equipment availabilities for delivery of ore to the pad.

So all of that in total, I would suggest, is what we're focusing on. One of the things I think to look at here going forward with Maricunga, is that we have engaged, and we talked about this before, in a bit of a deferred stripping scenario here. That deferred stripping scenario, we don't have to make the decision to start stripping again until 2015.

So we're going to give the team the opportunity. We think it's a good team, we think it's the right team. We're going to give them the opportunity to go in there and see if they can turn this thing around. So, I'm reasonably optimistic with this team.

So they got about a year then?

I would say that's fair.

I have a follow-up. Can I ask about Tasiast? Now that you have spent the $650 million I believe it was this year, on infrastructure and what have you, where do you think this operation goes now in terms of cost and production? I don't even want to talk about the expansion, but the existing operations. How's that going to look going forward now that all that CapEx is spent and behind you?

Yes, one of the things that I would say is that from a standpoint of the CapEx itself, we have looked at and scrubbed that capital through the year. Our capital expenditure there is actually significantly less than the $625 million this year. So we will see on the growth side, more the range of about $540 million to $550 million this year.

The Tasiast project itself, I think one of the benefits that we saw at Paracatu and the opportunity for the team to go into Paracatu and really start turning that thing around, is we completed the construction. Getting that interference of construction and that out of the way, I think is an important thing for the team to really focus on operations, both from an operating efficiency perspective and from a cost management perspective.

At Tasiast we put in a new general manager, and that was an internal promotion. You look at the performance of Fort Knox, and this was the general manager that has been at Fort Knox for a number of years. He is a very strong individual, a lot of experience with a continuous improvement behavior and a drive for continuous improvement throughout every aspect of the operation.

The other things that have happened that I think is important to recognize as well too, we have been running that site with numerous small generators. That from a standpoint of our power cost and stuff, very, very difficult to understand. And recognizing that is probably some of the highest most efficient power that you could place. Because these small generators run all over the place.

We have now completed Phase IB power, where we have a bank of Wartsila power generators that now will power up the entire site. We'll be able to get a handle on our power cost there as well, too.

So, I think there's a number of things. And then coupled with the new GM in there, with the right behavior, the right approach, I think that I'm optimistic about the opportunities that we'll see, improved efficiency and cost management there.

Thanks very much.

David Haughton, BMO Capital Markets.

Yes, good morning, Paul, Brant and Tony. Thank you very much for the update. A question on La Coipa. You've completed the mining now. Can you describe perhaps, Brant, where you see it going from here? Will we see zero production for a period of time? How does the work that you're undertaking at Phase 7 and Pompeya all fit into the future for it?

David, that's a good question. As we indicated, La Coipa has been one of those mines that has operated since 1991 and produced 3.5 million ounces.

If you talk to the geologists throughout the Company, they will certainly recognize that that Maricunga district, the La Coipa area, is a very, very prospective district. As we indicated, Phase 7, or the Pompeya resource, we have now turned that over to the projects group. We're looking at where the opportunities are to develop that.

In addition, we have very near the Pompeya, or Phase 7 resource, another resource that we're drilling, and that is called the Catalina. That is under a drilling program currently, and there is more to come on that. We'll update you on that in February. But, the overall objective is to see where the opportunities are at some point in the future to open this mine back up again.

So should we be turning the production off to zero in the near-term?

Yes. As of October, the end of October, we have put the mine in suspension.

Okay. Now flipping over to Chirano, I noticed in the text that you spoke about contribution from Akwaaba that's been established clearly as an underground, but you also spoke about Paboase. Have you developed the underground there or are you considering that? What has been the contribution of the open pit and the underground?

Paboase is under development. We are actually producing some development ores from Paboase. So if we look at the underground production, about roughly 15% to 18% of the underground production actually came from Paboase development ores. If we look at the production stats across the board here, about 70% of our production from Chirano was from underground, and about 30% from our open pit operations.

Okay, thank you very much, Brant.

Anita Soni, Credit Suisse.

Good morning, guys. Congratulations on a strong quarter and operational improvements. On Tasiast, your process costs, can you give me indication of the capital that you've put in? I think that you said that there was a power plant that had been completed. How is the process costs trending now?

Yes, as far as the processing costs, I don't have that on a per month basis, I don't have that in front of me right now. One of the things that I will say is that the process facility itself, while there are certainly some opportunities to improve, one of the biggest areas that we had, where we had difficulties in meeting some of our throughput projections, was the primary crusher there.

We are in the process right now of replacing that primary crusher. We started this year, we'll finish, we should have it wrapped up sometime toward the end of the first quarter next year. That is really going to help the performance of that plant.

All right, thank you very much.

Thanks.

(Operator Instructions)

Botir Sharipov, HSBC.

Good morning, everyone. Congratulations on a good quarter. A couple questions here. I understand you're batch processing Dvoinoye ore at Kupol. Could you possibly give us a bit more of a detail on sequencing in terms of interchanging between Kupol and Dvoinoye ore for the next two quarters? And maybe color on grades going forward, now that you've completed the processing of development ore?

Yes. It is designed to be on a batch. We truck material over when we've got sufficient critical mass. We plan to run the Dvoinoye or through the mill. Once that's through, we switch back to Kupol. Brant, elaborate on the cycle of what we're batching and how long it's in the Dvoinoye batch.

Yes, and certainly, as Paul mentioned, you need a bit of critical mass to start each batch. You don't want to do two, three day batches. That's just in efficient from the switch-over from Kupol to Dvoinoye ores and then back from Dvoinoye ores to Kupol ores. So we like to see a minimum of about a 10- to 12-day run at a very minimum.

We did one short run to get some experience, try get some experience, in the third quarter with Dvoinoye ores. And as we indicated in our press release, we have about 12,000 production ounces and there was another 6,000 ounces that went to capital credit.

We anticipate, from a production out standpoint, about 30,000 equivalent ounces this year. So we will make one more run Dvoinoye batch this year. But as far as the sequencing of when we batch, as Paul said, we are mining and delivering roughly at about 1,000 tons a day ore to Kupol. When we build up enough critical mass, we'll do our batch run. It will be intermittent and as we build up that critical mass.

And on the grades, I think, we were putting in circa 30 grams per ton in the third quarter. We don't really give the guidance on a go forward, but I'd draw your to the 2p grade of about 17, 18 grams as a proxy for what you could expect going forward.

Yes, that 17, 18 grams on Dvoinoye is a fully-diluted grade as well.

Okay, thank you. And the follow-up question is, could you probably give us a little bit more color on the ore exploration results so far and the potential impacts on the reserves?

We have actually Glen Masterman here, who is our Chief Geoscientist, Head of Exploration. We give you a flavor, again this is third-quarter, what we typically do and what we intend to do, is give a more fulsome update on exploration activities in the context of our year-end results. But maybe, Glenn, you can give a bit of a flavor?

Sure, Paul. So, through the quarter, the main exploration initiatives we're focused at Tasiast, Kupol, Dvoinoye, La Coipa and Chirano, so they are really the main elements of the portfolio in which we're investing most of that at the moment. As Paul mentioned, we'll come out early in 2014 with a full update of results for the year in 2013.

Just to give you a little bit of color on what's been happening at some of those specific targets, or target areas. In the Tasiast district, the main focus was south of the mine in the district where we've been exploring along the trend. We're going to switch back to the district or northern area of the mine in Q4 and follow up into 2014.

We've also been infilling along the Piment Footwall Zone where we identified a vein that we disclosed in the Q2 results, and that continues to be delineated. Again, we'll come out with the results of that work in early 2014.

At La Coipa, Brant's already mentioned the focus there. We've been drilling around the Catalina target near Pompeya and we continue to be encouraged by the results.

At Kupol, we've been infill drilling on the Moroshka vein and the goal there has to prove out the continuity of the high-grade mineralization in those narrow veins, and work is continuing this quarter. Into next year we'll start to step out on that structure, to determine whether there's further potential to expand a long strike.

At Dvoinoye the main focus has been on the [Vodo] license on a target called September Northeast, where most of the summer season drilling took place. We completed about 40 holes and we've now suspended that program because of the winter season coming on. But we expect to be back in the next summer to continue following up that work. So hopefully that gives you a bit of a flavor on what's been happening during the quarter and again we'll provide a full update early in the new year.

Thank you very much.

There are no more questions at this time. I will now hand the call back over to Paul Rollinson for closing remarks.

Thank you, operator, and thank you, everyone, for calling in. We look forward to further conversations through the quarter. Thank you.

This concludes today's conference call. You may now disconnect your lines. Thank you for participating. Have a pleasant day.